Instant Reaction: Intel Gives Encouraging Forecast After PC Market Rebounds

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. We're watching a lot of different companies, but I want to home in on one, and that would be Intel share surging in the after hours. Just building the momentum to the upside. Yeah, 7 % to the upside right now in the after hours. A little bit at the beginning, trepidation, I think, for shareholders. But I don't know, it could have to do also with some corrected numbers that were coming back and forth over the terminal for the results, the most recent results.

1:42As you mentioned, shares, what, up 90 % going into the print this year? Well, yeah. We know there was the U.S. taking that position in Intel specifically, an equity position. And it is now the third largest investor in Intel. So that certainly has given it a jolt, if you will, this year. But again, I think what's interesting is the company CFO speaking in an interview. You can check out our Ian Kings right through on this. But Intel saying the third quarter was stronger than it thought across the board. So, yeah, server demand was a surprise positive. It feels like there's a lot of things that feel like the changes, the moves by Liputan, the CEO, maybe some of it starting to pay off.

2:22Well, I wanted to see what Jay Goldberg has to say about all this. He's Semiconductors and Electronics Senior Analyst at Seaport Research Partners. He joins us from San Francisco. Jay, good to have you. You cover a lot of these companies, including Intel. You've got a neutral rating on Intel. Just give us your first reaction to this report that shows an encouraging forecast after a rebound in the PC chip market. Yeah, I think it's an encouraging step forward for the company. They've been through some rough times. And I think the driver of this quarter's results are their new products coming on stream using their 18A, their new manufacturing process, as well as some help from TSMC.

3:05So a bunch of new products starting to ramp into production and volume. I think that's helping a lot. And I'm most encouraged by sort of the gross margin outlook for next quarter. I haven't run through all my numbers, but it looks like it's much better than expected, which is important not just for the financial weight of that, But also, it's a good indicator into how their manufacturing process is tracking. I don't want to get you in trouble with compliance. Are you going to change your outlook, your rating on the stock? So I just upgraded it about a month ago from sell to neutral. And my concern here is more that big picture question you all were talking about earlier.

3:45As much as this quarter is good progress and we're seeing sort of tactically they're moving in the right direction, the looming question over the company is what are they going to do with the fabs? Last quarter, the CEO of Bhutan said if they don't get a customer for Intel Foundry, an external customer for Foundry, they're going to stop doing advanced manufacturing. And I think that's one of these tough analyst calls because in the near term, if they stop doing that, it removes a lot of expense. Numbers go way up. Stock goes up. it's a near-term easy thing to do, but long-term it's probably really bad for the company.

4:18And it's just hard to square that sort of long-term forecast, multi-year forecast. So I'm still on the fence. Hey, one thing I want to just point out, Jay, is that it looks like they're talking about seeing a fourth quarter adjusted gross margin of 36.5%. Third quarter adjusted gross margin was 40 % against an estimate of 36.1%. Is that the number you were looking for? Yeah, but there's a lot of adjustments in there. So I haven't worked through them all. Okay. Okay. Hey, listen, listen. This is a company that's been around for a long time. You know, you're entrenched in how you were, what you were, different executives coming in to try and right this ship.

5:00You know, it's a big ship to turn while also facing lots of growing competition. Do you feel like it is in the right direction? I think it's too soon to tell. I really hope it's moving in the right direction, but it's too soon to tell. What are they going to do with those fabs? And I've been saying for years that Intel's biggest challenge is not external competitors or customers. Their biggest challenge is internal and fixing their culture. So on that mark, I think this is a step forward. Lipu has a plan, and he's chipping away at this sort of internal problem. But they really have to readjust their worldview internally and understand that they're not the dominant player that they were for 20 years.

5:43They're the upstart now and they got to act like it. Jay, we spent a good portion of our program earlier talking about economic statecraft and the new role the U.S. government is taking in companies. They're reporting around potentially investing in some of these quantum companies. We, of course, have the Intel among the U.S. government being among the biggest shareholders in Intel. U.S. Steel, the golden share there, the critical minerals and mining companies that have taken investment or had interest expressed in them. From an Intel perspective, how does the U.S. government investment change Intel?

6:20I think it is going to encourage other U.S. chip companies to consider working with Intel Foundry. Right. Because, you know, NVIDIA has already invested in it. SoftBank's invested in Intel. now do we see Apple or Amazon or Google or one of these other potential Intel customers sign up to work with Intel Foundry, take that risk? Because it could be seen as patriotic? Well, that's OK. I'm glad you said that. Do they do it because it's the right thing for their business, because it's the best option for a foundry? Or is it because it shows the Trump administration that they're supporting a business that the administration has invested in?

6:58So I think it can be both, right? My view is that these companies need to work with Intel. They need to see Intel Foundry succeed. Because if they abandon Intel Foundry today and Intel abandons it entirely, what happens in five years when they're, you know, TSMC has an effective monopoly today? Right. In five years, they'll have a true actual monopoly. And that's that's going to be really challenging for all these all these companies. And so it's hard in the way that companies work. They're thinking on 90 day cycles. Somebody needs to be thinking of sort of the five, 10 year time horizon. And maybe the government is sort of the forcing function that gets us there.

7:36You know who thinks in more than five or 10 year cycles? A little country named China. They're pretty good about those long-term plannings. Just having some fun with you, Jay. Well, having said that, though, you know, on the other hand, are there companies who are saying, I don't want to get involved with anybody who's involved in the government? Because just like the way the U.S. government for a long time has been, or, you know, U.S. investors have been critical of, you know, sovereign-held entities, you know, in other countries. So is there some, you know, justification in that as well? Or should we just assume that Intel now has a massive, you know, backup called the U.S.

8:18government? So I think everybody's a little bit uncomfortable with the U.S. government taking stakes in companies. Everyone I know on Wall Street, everyone I know in the Valley, just a little bit uncomfortable about it, sort of ideologically. It's not something we're used to. it's clear that you know the u.s is moving towards some kind of national industrial policy this is one way to achieve that i'm not sure taking a stake in it is quite the right way to do it but you know there there are merits for being a little bit more somewhere in between the government controlling everything and the government doing nothing maybe there's a happy medium we can find hey 30 seconds uh on the call you're sitting down with uh intel execs what do you want to ask them just quickly?

9:01What are you doing with Foundry? Okay, that was great. So appreciate it. Jay Goldberg, thanks. Senior Analyst, Semiconductors and Electronics at Seaport Research Partners. We're looking at Intel continuing to trade higher here in the aftermarket.

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